Consumption tax proposals considered

The Revenue Committee heard testimony March 3 on measures that would replace most state taxes with a consumption tax on new goods and services.

LB79, introduced by Sen. Steve Erdman of Bayard, would create the Nebraska EPIC (Elimination of Property, Income and Corporate Taxes) Option Consumption Tax Act.

The bill would repeal state income tax, inheritance tax, state and local sales and use taxes and real and personal property taxes and impose a consumption tax on taxable property and services of 7.5 percent beginning Jan. 1, 2026. Counties, cities and villages could impose their own consumption tax within their boundaries.

The committee also heard testimony on two related measures, LR6CA and LR7CA, also introduced by Erdman. Those proposals would amend the state constitution to prohibit government entities from imposing taxes other than retail consumption and excise taxes and require the state to impose a consumption tax on all new goods and services except groceries.

Erdman said Nebraska’s overall tax rate is one of the highest in the country, which limits economic productivity. A tax system that allows people to choose when they pay taxes — by purchasing a new good or service — would drive population growth, he said, broadening the state’s tax base and allowing for a smaller individual tax burden.

Under LB79, consumption tax would not be imposed on any:
• sale of land;
• taxable property or service subject to an excise tax;
• purchase of used property;
• purchase of groceries for off-premises consumption; and
• purchase of taxable property and services used for educational, business or investment purposes.

Under the proposal, schools, counties and other political subdivisions would submit their proposed budgets to one of five regional boards that then would review and approve those budgets before forwarding them to the governor and the Legislature’s Appropriations Committee. The state treasurer would direct funding to those entities at the direction of the Legislature.

Assuming that new revenue generated by LB79 would be directed to funds and political subdivisions affected by the elimination of other state taxes, the state Department of Revenue estimates that the bill would result in a net revenue loss of $763 million in fiscal year 2025-26, $2.3 billion in FY2026-27 and $5.1 billion in FY2027-28.

Robbie Adams of Papillion testified in support of all three proposals. She said Nebraska is losing young people and retirees on fixed incomes to states that have lower property taxes or do not impose an income tax.

Also in support was Dennis Schleis of Omaha, who said his property taxes are increasing faster than inflation. As retirees on a fixed income, Schleis said, a consumption tax would allow him and his wife to stretch their savings.

Peggy Hoffmann of Norfolk also testified in support, saying a consumption tax would allow Nebraskans to decide how much they pay in taxes by controlling their spending.

Doug Kagan testified in support of LR6CA on behalf of Nebraska Taxpayers for Freedom. A consumption tax would encourage investment, allow people to keep more of their income and be easier to administer than the current tax system, he said.

Bryan Slone testified in opposition to LB79 on behalf of the Nebraska Chamber of Commerce and Industry, the Greater Omaha Chamber of Commerce and the Lincoln Chamber of Commerce. He said a consumption tax system would be complex to administer and require a much higher rate than proposed in order to fund state and local services.

Rather than grow the state’s economy, he said, such a tax would make Nebraska businesses uncompetitive with those in neighboring states and drive away 18-to-34 year olds, the demographic Nebraska needs most.

Jon Cannon of the Nebraska Association of County Officials also testified in opposition. Under LB79, he said, the state would have ultimate authority in distributing locally collected consumption tax revenue to county governments.

Also in opposition was Rebecca Firestone of OpenSky Policy Institute. She said a consumption tax rate of approximately 22 percent would be necessary to generate as much revenue as the state’s current tax system.

The proposed consumption tax would fall most heavily on low- and middle-income Nebraskans, who spend a greater proportion of their income on goods and services than those with higher incomes, Firestone added.

Christy Abraham testified in opposition to all three measures on behalf of the League of Nebraska Municipalities. She said the proposals would eliminate the local option sales tax that more than 200 Nebraska municipalities use to fund essential services and programs.

The committee took no immediate action on any of the proposals.